Canadian Personal Finance Blog

My mother clipped an article from the Globe and Mail by Tim Cestnick about Student Tax planning that I thought had some really good points in it. As I have a new University student in the family who has been working for the past year part time, much of his advice I already knew about but a great deal was news to me.

Withholding taxes

As long as your student is not working in a co-op job or the like that makes a lucrative salary, most student shouldn’t have any taxes (Federal, or provincial) deducted from their part time jobs. Fill in whatever forms you need to make sure that does not happen (no point in loaning the government that money).

Scholarship and Bursaries

I did not know that in 2006 Scholarships, fellowships and bursaries became Tax-Free. This is no longer income was news to me, and I was very impressed to read that one. I would even be happier if my child received a scholarship, but she is working hard on that one (I hope). 

Research Grants

If you travel and incur expenses for your taxed research grant, you can claim those. Not pertinent to me, but still useful to know.

Tuition and Education Credits

I knew that we could claim tuition on taxes (even though it is about 1/3 of the total pay out for my daughter living away from home). There is also a $400 a month education credit (you’ll get a form stating the student was at the institution FULL TIME) that you can claim as well (up to $5,000 of these credits can be transferred to me, so that is GREAT). 

Text Books

Another HUGE cost for University (especially if you buy them new) are books. In 2006 there was a tax credit for books, student fees and equipment which is $65 a month for a full time student. Good idea, be even better if the books were deductible, but I guess that is too much to ask for. 

Student Loan Interest

The interest on accredited loans are deductible as well (make sure you have complete documentation on this). 

Moving Expenses?

If your child moves over 40 KM to or from school and then has a job, evidently you can make this claim, but I would look closer into this one and check with the CRA before you do anything.

Get more RRSP Room

It’s important to put in a Tax return even if your child doesn’t have to pay anything, because you are starting to build up their RRSP allowance. I remember one  year when I was in co-op, I made far too much money and was going to have to pay taxes, but simply put money in an RRSP in February and after a waiting period cashed it out and ended up losing about $50 in admin fees, but effectively floated that income to the next tax year, not sure the logistics of this now. 

Remember also the GST credit comes into play once your child is over 18 as well. 

Rent costs

If your child is renting an apartment, remember that tax credit if you live in Ontario. It would be even nicer if I could write off their residence fees, because those are a BIG expense as well. Sounds like a question for my candidates, whenever they knock on my door. 

All in all a very informative article.

One of my favorite topics to discuss with anyone political is: why is it that the Canadian Tax system seems to be skewed against the single income family?

Most of the time the response I get back is a lot of “baffle gab” about supporting families through social programs, etc., however that is not what I am saying.

If you gave a couple (be they married or not) an ability to pool their income and income split (as they currently can with pension income after age 55), you might be surprised at what comes of this. If I was able to income split with my spouse (when I was employed at least) the amount of tax I would have paid would have been staggeringly less than I did as a single income earner, even with the paltry tax credit for the “Married tax credit”.

I have done numerous articles on this one (and have caused some interesting discussions in the comments as well), so I won’t rehash the numbers, but I think if the government gave families or couples the capability to income split or income balance (if that made sense) and had the concept of the Household Income, I tihnk they might see:

• More single income families, since it would make more sense for a spouse to stay home instead of taking a lower paying job.
• Higher employment numbers, since there would be many people who would stop looking for work, as they are more of a family asset as a tax shelter.

Haven’t had any politicos appear on my doorstep yet, but given I am home all day long, I feel sorry for the first one to show up on my doorstep.

I have been cleaning up my directories and looking over the 900+ postings I have been doing over these past few years and I came across this gem, I Should Divorce My Wife? which points out how strangely set up the tax system is. The concept is purely a “what if” scenario.

I should divorce my wife?

I read that one on the Alan Baggett news site, and scratched my head but it is actually how the tax system is set up currently. If I divorce my wife and pay her Alimony (not child support, remember that case a while back, where that is taxed in the payers hands) I can effectively split my income.

I remember having this argument that in the Government’s eyes the following scenario would be ideal:

1. Divorce my wife, and pay her half my salary as Alimony (thus sharing my income)
2. Have my children live with me, so I might be able to claim the Child Tax Credit and Ontario Tax Credit
3. Rent my wife an apartment in the basement of my house (with it’s own entrance).
4. Have my wife take care of the kids (as daycare) and write off the money I pay her on my income as well (and she does it in my home, so I write that off too).

OK, ok, this is a ridiculous scenario (and I’m sure some might even claim illegal, although I’d love to see that taken to court), but this is how messed up {sic} the entire Canadian Tax System is! I checked this with Quicktax and it was quite happy to show me the obscene amount of tax I’d save.

Alan’s tax bible is an interesting read, as are his stories (they are a little “he said, she said” which at times I am not fond of), but still interesting to read how some people are persecuted by the Tax system, while others get off “scott free”.

Please let me repeat, I do not condone the above tax sharing concept (but if you get away with it drop me a line, I’d be curious to hear).

Gas Prices and Inflation

With gas prices dropping back to only ludicrously expensive level, what is this going to mean for the Consumer Price Index? The spike jumping from 90 cents a litre to $1.35 a liter is still sifting through the pricing world, and now we are back to $1.20 a liter? This is going to be an interesting few months that is for sure, and I am not sure I am going to completely understand the CPI numbers either (coming out this Wednesday). I know that my family is most certainly not driving our Van as much as we used to and are driving my Carolla a great deal more.

More Cents Not to Work?

Like the punny title? It’s an interesting quandary my family has currently, which is, my wife has been working a volunteer job, that she has enjoyed over the past few years. They are now formalizing this position and are putting out a tender to fill this position, and they want my wife to apply for the job, but here are a few of the points that we must take into consideration:

1. The job is about 10 hours a week which would pay about twice minimum wage, so not a huge amount of money.
2. If my wife cannot find a nursery school to put my 3 year old son in (we were planning on doing this any how) we may have to find day care to cover this job.
3. This may be just enough money to make my wife NOT a tax deduction on my taxes (thus I lose the $1200 worth of rebates I would get if she had no income).
4. If (3) is true then her income effectively is taxed at my rate (if you think about it)
5. They are asking for a 3 year commitment
6. She’d have to do some driving for this job too, which is now much more expensive.

Points (3) & (4) are the ones that have me not so sure that it makes any sense for her to take this job. If (2) cannot come to pass, then the job is out, because I am not paying for day care for a part time job (this is not Quebec where we can get a $10 a day daycare spot).

An interesting quandary, which I will keep my gentle readers posted on, but I am curious to hear any opinions about this kind of issue.